Exam 14: Business Unit Performance Measurement

The following information was presented by Gamma Manufacturing Company for an asset purchased at the end of the previous year. What is the return on investment (ROI)assuming Gamma (a)uses the straight-line method for depreciation and (b)beginning-of-year net book values to compute ROI?

After-tax income divided by sales is called the

Which of the following statements does not represent a limitation of using return on investment (ROI)for measuring and evaluating performance?

Residual income is similar to the _________ notion of profit as being the amount left over after all costs,including the cost of the capital employed in the division,are subtracted.

One problem with economic value added (EVA)adjustments is determining the appropriate life for expenditures that benefit multiple periods.

A manager can always increase his/her return on investment (ROI)by

Which one of the following items would most likely not be incorporated into the calculation of a division's investment base when using the residual income approach for performance measurement and evaluation?

The asset turnover is a measure (ratio)of an investment center's ability to

Economic value added (EVA)assumes that which of the following GAAP expenses would not result in an adjustment to either the income or the capital employed?

If sales each year average $840,000,what will be the asset turnover using gross book value?

In 2008,Wishbone Corporation had an operating profit of $750,000 and a residual income of $300,000.If Wishbone's cost of capital is 15%,what is the amount of the invested capital?

Return on investment (ROI)is a very popular measure employed to evaluate the performance of corporate segments because it incorporates all of the major ingredients of profitability (revenue,cost,investment)into a single measure.Under which one of the following combinations of actions regarding a segment's revenues,costs,and investment would a segment's ROI always increase? (CIA adapted)

Which division has the largest asset turnover?

How will decreases in the following items affect return on investment (ROI)?

The Najacht Division of the Rassbach Company has a return on investment (ROI)of 12%,sales of $200,000,and an asset turnover of 2.0.What was Najacht's operating income?

Using beginning balances for the investment base in computing return on investment (ROI)might encourage managers to acquire assets

A firm earning a profit can increase its return on investment by (CMA adapted)

What is the residual income for each year,assuming the cost of capital is 15% and RST uses historical costs and net book values to compute residual income?

What is the ROI for each year using gross book value?

Which division has the smallest return on investment (ROI)?